An Economy Has a Current Inflation Rate of 12

question 284

Multiple Choice

An economy has a current inflation rate of 12%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, how much annual output must be sacrificed in the transition?

• A)16%
• B)8%
• C)4%
• D)None of the above is correct.

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Definitions:

Cause And Effect Relationship

A connection between two events where one (the cause) makes the other (the effect) happen.

Opportunity Cost

The value of the best alternative forgone when an item or activity is chosen.

Monetary Costs

Expenses measured in terms of the amount of money expended or required to purchase goods, services, or assets.

Alternative Activities

Options or activities that can be chosen as alternatives to the current activity being engaged in, often considered in the context of opportunity cost.